Dear Credit Score Report,
When you get sent a credit card app that says you have been "prescreened," what does that actually mean? -- Chris Keane

Hey Chris,
When you see the term "prescreened," it's referring to a card offer that a bank aims at certain consumers based on their borrowing histories and other personal information.

When you receive a prescreened offer, it means the bank has done its homework. "Basically, the issuer has done a background check on you and decided you are an ideal applicant," says Anuj Shahani, director of competitive tracking services in the financial services group at Synovate, a direct-mail marketing research firm. That background check involves a look at any available personal information, including your credit score and borrowing history. "Based on all the information available to issuers, offers can be customized to appeal to your age bracket, income, FICO score, memberships to groups, etc.," Shahani says in an email. Since the offers are so well-tailored, card approvals are almost guaranteed -- although not necessarily for the headline interest rate and credit line outlined in the offer.

Of course, not all the credit card offers you get in the mail are prescreened. "The alternative is an ITA (Invitation-to-apply), which is a card offer sent without any prior screening," Andrew Davidson, senior vice president of Mintel Comperemedia, which tracks direct marketing offers, says in an email.

To come up with a targeted list of potential cardholders, a bank may either pay the credit bureaus (Equifax, Experian and TransUnion) for a list of borrowers that fit certain criteria, or provide a list of names and have the bureaus identify those individuals who meet its criteria. Such "soft inquiries" don't have any negative credit scoring impact. Using the names and addresses of possible applicants, the bank then sends a mass mailing. That offer may also be marketed as "preapproved," "prequalified" or "preselected," but the content of the mailing matters more than the language. "The phrase 'preapproved' had more meaning a few years ago prior to a new rule requiring all credit card offers to include a 'prescreened opt-out notice,'" Davidson says. "Now, if you see the opt-out notice, you know it is prescreened regardless of the marketing verbiage or fine print." (More later on how you can opt out.)

That mailing will likely be well-crafted. Armed with detailed personal information, banks are able to get specific with their prescreened offers. "They know, for example, if you have declared yourself bankrupt in the past 12 months. They know how many credit cards you have and how many lines of credit you have in total," Davidson says. This information can help lenders to carefully word their offers. "Capital One has been targeting folks recently with a message that says 'You deserve some credit for getting through bankruptcy,'" Davidson notes. "The list of variables available is quite extensive."

Shahani says that different banks are known to focus on very different types of borrowers. "The best example is First Premier," Shahani says. "First Premier has a certain set of subprime requirements, mailing to the folks who would otherwise not qualify for credit. It is interesting to note that First Premier is more concentrated in the Midwest and South, as that where the majority of households considered subprime live," he says, referring to borrowers with the lowest credit scores. (Prime borrowers are those with high scores.) "In addition, American Express, Bank of America and Chase focus on superprime households, whereas Citi and Discover focus on prime, and Capital One focus on a combination of subprime, prime and superprime," Shahani says, referring to the various segments of the credit scoring range. He adds that issuers are also using public information that can't be found in credit reports -- including data on educational and professional background, phone service history and ownership of other assets -- to get a more complete picture of potential cardholders.

Additionally, offers may be based on membership in certain groups or relationships with certain businesses. "If you belong to AARP, chances are you are going to get a Chase AARP Visa offer. If you own a Harley-Davidson motorcycle, chances are you are going to get a U.S. Bank Harley-Davidson offer," Shahani says. Such relationship data can be combined with other personal information to better target possible card applicants. American Express, for example, could decide to market its co-branded Delta credit cards to consumers who live near "hub cities" that are used as airline transfer points, says AmEx spokeswoman Desiree Fish.

Experts say there are limits to how targeted such offers become, however. "I would say they resist customizing an offer too much, considering how many offers are sent out on a monthly or yearly basis," Shahani says. "Imagine 115 million households, receiving 242.5 million offers in a month, and each one being highly customized. It's expensive and a logistical nightmare! They'll more likely group you into one of their segments, and send you an offer based on the segment you fall into."

While almost guaranteed approval for personalized offers may sound appealing, there is a downside: Prescreened mailings can increase the threat of potential fraud. If an identity thief steals one of these offers from your mail or trash, fills it out using your personal information (but perhaps lists another address) and mails it back, they are more likely to get approved for a card in your name. That's good motivation to be cautious. "Consumers shred their credit card offers for a reason," Shahani says.

If you'd rather not get such mailings in the first place, you can opt out either for five years or permanently, according to the Federal Trade Commission. There are two ways to do so:

"When you call or visit the website, you'll be asked to provide certain personal information, including your home telephone number, name, Social Security number and date of birth," the FTC website explains. "The information you provide is confidential and will be used only to process your request to opt out." But what if you still want a new card after opting out? You can still evaluate offers and apply online at -- ahem -- certain websites.

Regardless of the offer you are considering, always carefully read any terms and conditions and -- to preserve your credit score -- only apply for credit when necessary.

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Updated: August 30, 2010

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